If there is a large increase in the price of oil,which of the following would most likely occur in the short run?
A) The aggregate demand curve shifts upward,the price level rises,and output increases.
B) The aggregate supply curve shifts downward,the price level falls,and output increases.
C) The aggregate demand curve shifts downward,the price level falls,and output falls.
D) The aggregate demand curve shifts upward,output remains unchanged,and the price level rises.
E) The aggregate supply curve shifts upward,the price level rises,and output falls.

Question

Quizplus · Accepted Answer

When there is a large increase in the price of oil, the cost of production increases for firms. As a result, the short-run aggregate supply shifts upward, causing the price level to rise and output to fall. This means that choice E is the most likely scenario in the short run. Choices A, B, C, and D do not accurately reflect the impact of an increase in oil prices on the economy in the short run.

If There Is a Large Increase in the Price of Oil,which